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Defense of Marriage Act: what the U.S. Supreme Court’s Windsor decision may mean for employer-sponsored benefit plans

Now that the U.S. Supreme Court has ruled in U.S. v. Windsor that the federal Defense of Marriage Act (“DOMA”) is an unconstitutional “deprivation of the equal liberty of persons that is protected by the Fifth Amendment of the Constitution,” sponsors of employee benefit plans will need to prepare for the possible consequences of the historic decision for retirement, health and welfare, and other benefit plans.

In Windsor, the Supreme Court held unconstitutional DOMA’s exclusion of same-sex spouses from the federal estate tax exemption for surviving spouses. In addition to the impact of the decision on federal estate taxes and other federal benefit programs (including Social Security), one of the most important consequences of Windsor may be its impact on the design and administration of employee benefit plans. And perhaps not surprisingly, one of the major aspects of the decision for benefit plans is the federal tax treatment of the value of health and other welfare benefit coverage for covered same-sex spouses of employees, which pre-Windsor has generally been treated as taxable wages.

The overturning of DOMA does not necessarily mean that same-sex spouses must be covered by employer-sponsored benefit plans. But, for example, if a health plan provides coverage to employees’ spouses, same-sex marriages sanctioned in a state where same-sex marriage is legal may have to be recognized in other states, meaning that coverage under plans that provide for spousal benefits will almost certainly have to be extended to same-sex spouses of covered employees.

Not every consequence of Windsor is necessarily automatic; regulatory or Congressional action may be required to tease out all the potential implications of the decision for employee benefit plans. That being said, sponsors of employee benefit plans should be on the lookout at least for developments in the following areas in the wake of Windsor:

Health and Welfare Benefit Plans

Tax-free health coverage for same-sex spouses of employees;

Expanded rights for same-sex spouses as qualified beneficiaries under COBRA;

Eligibility and other coverage issues relating to the children of same-sex marriages;

The possible retroactive effect of Windsor with respect to same-sex spouses; and

The possible refund of taxes paid for open tax years (including employer-paid FICA) arising from imputed income for benefit coverage provided to same-sex spouses in prior plan years.

Retirement Benefit Plans

Spousal rights with respect to pension and other retirement benefits, including survivor annuity rights under defined benefit pension plans and beneficiary rights under 401(k) plans;

Changes in the administration of required minimum distributions to spouses;

The applicability of qualified domestic relations orders (QDROs) to same-sex marriages; and